4. Membership

A room or building is prepared where the representatives of the various banks belonging to the association meet daily to exchange checks. Not every bank can be a member, only those which are in good standing and are willing to conform to the rules of the clearing house. In most associations three fourths of the banks represented at a meeting must vote in favor of admission; furthermore, it may, by a similar vote, impose such conditions oil the admission of a bank as the association may deem expedient. As the privilege is a valuable one, especially to banks established in the large cities, they are required to pay an admission fee based on the amount of their capital. This fee in New York is S1,000 for a half a million dollar bank; S2,000 for a bank with a capital twice as large; and increasing until $7,500 must be paid by a five million dollar bank.

5. Authority Over Its Members

The rules adopted by every clearing house are designied to preserve and enforce the methods of conservative banking Thus one of its standing committees has power for clearing house purposes to examine all books and assets of any member of the association whenever it may deem it necessary; again in a case of extreme emergency it may suspend any member from the privileges of the clearing house until the pleasure of the association can be ascertained. If a bank is lending too much money,is frequently below the reserve line, very likely the clearing house committee will make a request for an examination. This is a kind of notice that its methods are regarded with suspicion. If a bank should refuse to comply, it would be at once suspended or expelled. The exercise of this supervision by a clearing house over its members is most salutary.

Sometimes when a bank is "overtrading," as the banks say, loaning too much money, which is revealed in checks drawn thereon and deposited with other banks for collection, it is required to deposit security that may be used, if need be, to pay its checks. This is rarely done; it is one of the measures of discipline sometimes administered to reduce a bank to more prudent ways of doing business..

The clearing house association, therefore, is an organization composed entirely of banks within a city or limited area that are willing to conform to a code of well-defined rules. The advantages are so great that every bank desires to be a member that can come within these rules.

6. Clearing Through Another Bank

In some cases, however, of deprivation to a bank by reason of its charter, location, size, or other peculiarity, it may, with the consent of the clearing house, have its checks cleared through a member. Every bank that can clear through another is known to all the members of the clearing house ; and when they prepare their checks for clearing, those drawn by non-clearing banks are presented to those which have agreed to clear for them. Thus no bank in Brooklyn or Jersey City is a member of the New York clearing house; but all of the banks in those two places have arrangements with New York banks for clearing through their assistance.

In such cases the Brooklyn bank, for example, keeps an ample deposit with the New York clearing bank to pay all of its checks that may be presented. The New York bank receives, through the clearing house, the checks of the Brooklyn bank, charges them to it, sends them over for examination and final settlement. The New York bank is paid by the profits derived from using the deposit of the Brooklyn bank; or it may be that some additional compensation is given, depending on the magnitude and difficulty of the business.